Air cargo to get marginally better in 2013

Wednesday, December 19, 2012

The global air cargo market is in flux heading into 2013.
Uncertainty over the fiscal cliff makes predictions about domestic cargo nearly impossible, and the ongoing financial crises overseas is also muddying the path forward.
According to preliminary year-end figures recently released by the International Civil Aviation Organization, cargo traffic fell by 1.2 percent this year, reflecting slower global trade growth than in 2011. The report found that Europe’s economic problems, a slowdown of Chinese exports and stiff competition from ocean carriers are all contributing to a sluggish air cargo market.
In this meager environment, Airbus and Boeing delivered 940 new planes. The companies' order books now extend past 1,500 orders, planes that will come online in the next few years. The aviation organization sees these new, modern planes as a blessing for the industry.
“Together with a more efficient operational process implemented by the airline industry, as well as an improved air traffic management system, these environmental-friendly aircraft will contribute positively to the sustainability of air transport development,” ICAO wrote in a press release.
But the air cargo market might take some time to adjust to the new planes. The introduction of more capacity in the coming years will also have an impact on the global cargo market, making rates unstable. To keep rates up and capacity down, some carriers might choose to park capacity in the short-term or push planes out for early retirements.
All-cargo airlines, according to Stephen Fenwick, CEO of DHL Express Americas, are facing an uphill battle in the current market. He said these carriers are facing a modal shift that is taking cargo out of the skies, the perpetual high cost of fuel, and the introduction of wide-body passenger aircraft. Finally, increased competition comes from integrators.
“Air express companies that operate their own airlines — FedEx, UPS, DHL — are able to flexibly price excess capacity to fill it for marginal revenue earnings, pressuring general cargo yields,” he told American Shipper.
“In general,” he continued, “cargo airlines will continue to fly if they can cover cash costs. Once they get to a point of operating a route at cash-negative levels, it is better to park.”
At Air Cargo Management Group, Alan Hedge sees a better cargo market next year, but noted he doesn’t see any extraordinary growth in store. “While there’s cause for optimism if you look at the economic drivers … we don’t see anything particularly dire like the start of another recession, but we don’t see any particularly good news, either,” he said. “We don’t see anything that looks like robust growth in 2013. We are hoping that we’re bottoming out.”
Airline officials, themselves, are still optimistic for the coming year, even with all the external challenges bearing down on the air freight sector and all the excess capacity in the market. Shawn McWhorter, Americas president for Nippon Cargo Airlines, sees a rebound on the horizon.
“The air cargo market was very strong in 2010 and 2011,” he said, “and we are currently in a down cycle. But the outlook in 2013 is more positive, with the reduction of capacity by some freighter carriers and the eventual financial stabilization in Europe and the U.S.” - Jon Ross